CA2531308A1 - Mutual fund corporate structure with nested corporate funds having multiple categories of securities defining preferences of distribution based on taxable income types - Google Patents
Mutual fund corporate structure with nested corporate funds having multiple categories of securities defining preferences of distribution based on taxable income types Download PDFInfo
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- CA2531308A1 CA2531308A1 CA002531308A CA2531308A CA2531308A1 CA 2531308 A1 CA2531308 A1 CA 2531308A1 CA 002531308 A CA002531308 A CA 002531308A CA 2531308 A CA2531308 A CA 2531308A CA 2531308 A1 CA2531308 A1 CA 2531308A1
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Abstract
A method for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, the method comprising: establishing a mutual fund corporation for holding the portfolio of assets; establishing at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types; and, distributing the income among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types.
Description
A METHOD AND SYSTEM FOR DISTRIBUTING MUTUAL FUND INCOME
FIELD OF THE INVENTION
[0001] This invention relates to the field of distributing mutual fund income to investors, and more specifically, to a method and system for optimizing investors' after-tax returns from investments in mutual funds.
BACKGROUND OF THE INVENTION
FIELD OF THE INVENTION
[0001] This invention relates to the field of distributing mutual fund income to investors, and more specifically, to a method and system for optimizing investors' after-tax returns from investments in mutual funds.
BACKGROUND OF THE INVENTION
[0002] A mutual fund is an investment vehicle which invests monies it receives from investors in an "investment portfolio" or pool of various securities. Each mutual fund has a different investment objective and, as a result, has different securities in its investment portfolio. For example, the investment portfolio of a Canadian balanced fund will typically contain Canadian equity and fixed income securities, while a foreign equity fund will contain primarily foreign equity securities.
[0003] An investor's interest in the mutual fund is represented by "units" if the mutual fund purchased is a trust or "shares" if the mutual fund purchased is a corporation. The number of shares or units an investor owns in comparison to the total number issued by the mutual fund determines his or her ownership interest in the fund.
[0004] The value of the securities in the investment portfolio goes up and down with market conditions. As a result, the value of the investor's investment also goes up and down. The investor will make money if he or she sells their units or shares and their value (caused by changes in the value of the investment portfolio) is greater than their value at the date of purchase.
[0005] The key advantages of investing in a mutual fund include the following:
professional management, diversification, liquidity, record keeping (i.e., receipt of financial reports, tax slips, investment statements, etc.), and, convenience (i.e., relatively small amounts of money may be invested).
professional management, diversification, liquidity, record keeping (i.e., receipt of financial reports, tax slips, investment statements, etc.), and, convenience (i.e., relatively small amounts of money may be invested).
[0006] However, one disadvantage of present mutual funds, and methods and systems for investing in such funds, is their inadequacy with respect to tax efficiently distributing income to investors.
[0007] A need therefore exists for an improved method and system for distributing income from mutual funds. Accordingly, a solution that addresses, at least in part, the above and other shortcomings is desired.
SUMMARY OF THE INVENTION
SUMMARY OF THE INVENTION
[0008] According to one aspect of the invention, there is provided a method for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, the method comprising: establishing a mutual fund corporation for holding the portfolio of assets; establishing at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types; and, distributing the income among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0009] According to another aspect of the invention, there is provided a method in a data processing system for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, the method comprising: receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types; receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types; and, sending a signal indicative of the distribution.
calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types; and, sending a signal indicative of the distribution.
[0010] In accordance with further aspects of the present invention there is provided an apparatus such as a data processing system, a method for adapting this system, as well as articles of manufacture such as a computer readable medium having program instructions recorded therein for practising the method of the invention.
BRIEF DESCRIPTION OF THE DRAWINGS
BRIEF DESCRIPTION OF THE DRAWINGS
[0011] Further features and advantages of the embodiments of the present invention will become apparent from the following detailed description, taken in combination with the appended drawings, in which:
[0012] FIG. 1 is a block diagram illustrating a financial structure for a mutual fund corporation in accordance with an embodiment of the invention;
[0013] FIG. 2 is a flow chart illustrating operations of a method for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, in accordance with an embodiment of the invention;
[0014] FIG. 3 is a block diagram illustrating a data processing system adapted to implement an embodiment of the invention; and,
[0015] FIG. 4 is a flow chart illustrating operations of software modules within the memory of a data processing system for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, in accordance with an embodiment of the invention.
[0016] It will be noted that throughout the appended drawings, like features are identified by like reference numerals.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
[0017] In the following description, details are set forth to provide an understanding of the invention. In some instances, certain structures and techniques have not been described or shown in detail in order not to obscure the invention.
[0018] FIG. I is a block diagram illustrating an mutual fund corporation 100 in accordance with an embodiment of the invention. The mutual fund corporation 100 includes a corporate fund 120 (e.g., "Corporate Fund A") for each investment mandate or portfolio of assets 150.
The mutual fund corporation 100 may include a number of corporate funds 120 (only one corporate fund 120 is shown in FIG. 1), each being a mutual fund having a distinct investment objective. Each corporate fund 120 has one or more tax classes (e.g., capital gains class 132, return of capital class 133, dividend tax credit class 134, compound growth class 135). Each corporate fund 120 also has one or more corresponding series of shares for each tax class. According to one embodiment, some corporate funds 120 may not have a tax class.
The mutual fund corporation 100 may include a number of corporate funds 120 (only one corporate fund 120 is shown in FIG. 1), each being a mutual fund having a distinct investment objective. Each corporate fund 120 has one or more tax classes (e.g., capital gains class 132, return of capital class 133, dividend tax credit class 134, compound growth class 135). Each corporate fund 120 also has one or more corresponding series of shares for each tax class. According to one embodiment, some corporate funds 120 may not have a tax class.
[0019] The mutual fund corporation 100 is a "mutual fund corporation" as defined in the Income Tax Act (Canada). Each corporate fund 120 is a "mutual fund" as defined in National Instrument 81-102 under the Ontario Securities Act (or equivalent provincial securities legislation). The mutual fund corporation 100 is a tax-efficient investment structure that allows taxable investors to switch between investment classes, series or funds without triggering a taxable disposition. The mutual fund corporation 100 houses the corporate funds 120 and allows for transfers between funds 120 as the corporation 100 is recognized as the taxable entity rather than the corporate funds 120. Hence, the multi-class structure facilitates investment by a taxable investor whose goal is to optimize the after-tax value of their investment portfolio and its distributions.
[0020] In prior mutual fund corporations, numerous classes could be created, each constituting a corporate mutual fund, and each having a separate investment objective and investment portfolio.
Each class or corporate mutual fund could offer different series of securities. The mutual fund corporation 100 of the present invention differs in structure from that of prior mutual fund corporations. While the mutual fund corporation 100 includes classes 132, 133, 134, 135, unlike prior mutual fund corporations those classes do not represent individual corporate mutual funds, rather, they represent tax classes (for which there are preferences) within each corporate fund 120.
Each corporate fund 120 is housed in and forms a part of the mutual fund corporation 100.
Each class or corporate mutual fund could offer different series of securities. The mutual fund corporation 100 of the present invention differs in structure from that of prior mutual fund corporations. While the mutual fund corporation 100 includes classes 132, 133, 134, 135, unlike prior mutual fund corporations those classes do not represent individual corporate mutual funds, rather, they represent tax classes (for which there are preferences) within each corporate fund 120.
Each corporate fund 120 is housed in and forms a part of the mutual fund corporation 100.
[0021] To reiterate, the multiple classes 132, 133, 134, 135 included in each corporate fund 120 allow different types of income to be streamed out among investors in the corporate fund 120 more efficiently than through prior structures. This improved efficiency is due to the structure of the mutual fund corporation 100 and the resulting segregation of different types of investors. Each corporate fund 120 and its classes are a separate portfolio within the mutual fund corporation 100. In contrast, prior structures have provided separate mutual funds within a separate class of the mutual fund corporation (i.e., a separate class for each corporate fund).
[0022] According to one embodiment, each corporate fund 120 has four (4) publicly offered tax classes (i.e., capital gains class 132, return of capital class 133, dividend tax credit class 134, and compound growth class 135). Each corporate fund 120 also has one or more corresponding series of shares for each class. All of the tax classes share a single investment portfolio 150 and comprise a single mutual fund. Each of these classes ranks equally in terms of the total return they are allocated from the corporate fund 120 from which they are issued (i.e., effectively pro-rata based upon the respective assets). However, each of the classes has a different set of preference rights to the variety of taxable distributions that the mutual fund corporation 100 may make to reduce its taxable income.
Thus, each tax class 132, 133, 134, 135 provides for a distinct tax planning objective. As a result, taxable investors may integrate their investment and tax objectives by purchasing specific shares which fit their tax profile. This feature simplifies individual investor tax planning strategies. The tax classes and the distribution strategies embedded in each corporate fund 120 are illustrated in Table A
as follows:
Taxable Income Type Foreign Interest Income Canadian Capital Gains Dividend Income Trust Taxable Income Income Dividends Return of Capital Class N/A N/A N/A Third Third 133 Preference Preference Compound Growth N/A N/A N/A Fourth Fourth Class 135 Preference Preference Capital Gains Class N/A N/A N/A Fifth First 132 Preference Preference Dividend Tax Credit N/A N/A N/A First Sixth Class Preference Preference Inter-Fund Class N/A N/A N/A Second Second 131 Preference Preference Inter-Fund Class Applied First Applied Applied Losses Applied Losses Limited Recourse Debt Second Second to DIV's Last Applied First Interest Expenses Fund Expenses Applied First Applied Applied Losses Applied Losses Second Second to DIV's Last Applied First Table A: Tax Class, Taxable Dividend, and Expense Application Preference Matrix
Thus, each tax class 132, 133, 134, 135 provides for a distinct tax planning objective. As a result, taxable investors may integrate their investment and tax objectives by purchasing specific shares which fit their tax profile. This feature simplifies individual investor tax planning strategies. The tax classes and the distribution strategies embedded in each corporate fund 120 are illustrated in Table A
as follows:
Taxable Income Type Foreign Interest Income Canadian Capital Gains Dividend Income Trust Taxable Income Income Dividends Return of Capital Class N/A N/A N/A Third Third 133 Preference Preference Compound Growth N/A N/A N/A Fourth Fourth Class 135 Preference Preference Capital Gains Class N/A N/A N/A Fifth First 132 Preference Preference Dividend Tax Credit N/A N/A N/A First Sixth Class Preference Preference Inter-Fund Class N/A N/A N/A Second Second 131 Preference Preference Inter-Fund Class Applied First Applied Applied Losses Applied Losses Limited Recourse Debt Second Second to DIV's Last Applied First Interest Expenses Fund Expenses Applied First Applied Applied Losses Applied Losses Second Second to DIV's Last Applied First Table A: Tax Class, Taxable Dividend, and Expense Application Preference Matrix
[0023] Referring to Table A, the capital gains ("CG") class 132 has a first preference for annual capital gains dividends. The capital gains class 132 also has a fifth preference for Canadian taxable dividends. These shares are suitable for investors with current or carry forward capital losses from other sources who wish to utilize those losses in the current or future tax years. The shares of this class are also suitable investments for the portfolios of minor children who have received capital from adults, as capital gains dividends are taxed in the hands of minors and are not attributable back to the adult. The shares of the capital gains class 132 may be used to segregate specific investors who benefit from receiving capital gains distributions annually. These investors help higher income investors who from a tax viewpoint would prefer to compound their investments tax-free or otherwise receive their distributions primarily as more efficient return of capital.
[0024] The return of capital ("ROC") class '133 has a third preference for Canadian taxable dividends and a third preference for capital gains. The objective of this class is to provide a distribution consisting primarily of a return of investor capital. The per security distribution may include capital gains dividends and Canadian taxable dividends to the extent that the mutual fund corporation 100 is required to declare capital gains dividends and Canadian taxable dividends to eliminate the overall tax liability of the corporation. The shares of this class are suitable investments for higher-income investors seeking tax efficient cash flow from an equity, balanced, or fixed income portfolio.
[0025] The dividend tax credit ("DTC") class 134 has a first preference for Canadian taxable dividends and a sixth preference for capital gains. The objective of this class is to provide a dividend per security, consisting primarily of taxable Canadian dividends. The per security dividend may include capital gains dividends to the extent that the mutual fund corporation 100 is required to declare capital gains dividends to eliminate the overall tax liability of the vehicle. The initial distribution rate is based upon a net asset value per security and may be adjusted annually based upon the net asset value per security at the date of adjustment. At present, approximately the first $30,000 of Canadian dividend income may be received on a tax free basis for individual investors with no other sources of income. The $30,000 threshold may vary significantly depending upon the investor's province of residence. The shares of this class are suitable investments for investors seeking to increase the amount of Canadian dividend income to take advantage of the preferential tax treatment of Canadian dividends. These shares are appropriate investments for shareholders looking to receive monthly dividend income and for individuals in the lowest tax brackets who wish to receive regular income to maximize the utilization of their personal tax exemptions. The shares of the dividend tax credit class 134 may be used to segregate specific investors who benefit from receiving taxable Canadian dividends tax-free or at very low rates of tax.
These investors help higher income investors who would, from a tax viewpoint, prefer to defer taxes or receive capital gains distributions by taking taxable dividend distribution allocations that in a conventional mutual fund structure would be allocated to all investors.
These investors help higher income investors who would, from a tax viewpoint, prefer to defer taxes or receive capital gains distributions by taking taxable dividend distribution allocations that in a conventional mutual fund structure would be allocated to all investors.
[0026] The compound growth ("CGR") class 135 has a fourth preference for Canadian taxable dividends and a fourth preference for capital gains. This class only receives taxable distributions after the preference rights of the other classes have been satisfied. The objective of this class is to maximize the after-tax value of an investor's portfolio, by minimizing, to the extent possible, the amount and frequency of taxable dividends distributed to an investor. This share class is unique in that it is the beneficiary of the nested class preference and inter-fund note structure (see below) of the present invention. The shares of this class are suitable for investors who wish to focus on capital growth while paying tax in respect of the investment only on a disposition of the investment in the corporate funds. The compound growth class 135 may be used to segregate taxable investors who would benefit from deferring all taxable distributions until such time as they leave the fund family.
[0027] According to one embodiment, to further improve the efficiency of the mutual fund corporation 100, a separate mutual fund trust 110 (e.g., "Trust A") may be associated with each corporate fund 120. Of course, not all corporate funds 120 may require an associated mutual fund trust 110. The mutual fund trust 110 is a "mutual fund trust" as defined in the Income Tax Act (Canada). Note that only one mutual fund trust 110 is shown in FIG. 1. This structure may be referred to as a "fund-on-fund" arrangement. According to this embodiment, each corporate fund 120 has four (4) publicly offered tax classes (i.e., capital gains class 132, return of capital class 133, dividend tax credit class 134, and compound growth class 135) and a single non-publicly offered class (i.e., an inter-fund class 131).
[0028] Referring to Table A, the inter-fund ("IF") class 131 has a second preference for Canadian taxable dividends and a second preference for capital gains. The inter-fund class 131 is a non-tax and non-publicly offered class created to facilitate the investment by the trust fund 110 in the corresponding corporate fund 120. This class has second preference rights to taxable distributions after the first preference rights of other tax classes have been satisfied.
[0029] According to this embodiment, the tax classes 132, 133, 134, 135 and the inter-fund class 131 share a single investment portfolio 150 and comprise a single mutual fund.
Thus, each corporate fund 120 is subdivided into five (5) distribution preference classes of shares. Each of these classes ranks equally in terms of the total return they are allocated from the corporate fund 120 from which they are issued (i.e., effectively pro-rata based upon the respective assets) and each of the classes has a different set of preference rights.
Thus, each corporate fund 120 is subdivided into five (5) distribution preference classes of shares. Each of these classes ranks equally in terms of the total return they are allocated from the corporate fund 120 from which they are issued (i.e., effectively pro-rata based upon the respective assets) and each of the classes has a different set of preference rights.
[0030] In general, taxable investors may be precluded from purchasing units of the mutual fund trust 110 and non-taxable or registered investors are precluded from purchasing securities of the various corporate classes 131, 132, 133, 134, 135 (i.e., except for the trust funds in respect of the purchase of the inter-fund class). Proceeds of sales of trust securities to non-taxable or registered investors are invested in a combination of inter-fund class limited recourse debt 142 and inter-fund class shares 141 of the relevant corporate fund 120 where they are invested in the corporate fund's portfolio 150.
Proceeds of sales of the various tax class shares to taxable investors are also invested in the corporate fund's portfolio 150. The inter-fund class limited recourse debt structure has a related interest rate.
This debt 142 is an advantageous feature of the present invention and is designed to apply a high rate deduction interest expense against three types of high tax-rate investment income potentially received from the portfolio 150, namely, foreign dividend income, interest income, and income trust income (see Table A).
[0031 ] The debt 142 consists of limited recourse notes which are redeemable on demand by the trust fund 110 and pay, according to one embodiment, interest at a floating rate equal to the prime rate of interest plus 1%. The debt 142 is secured by, and the recourse will be limited to, the assets of the applicable inter-fund class 131. The value of the aggregate debt of the inter-fund class 131 (represented by the limited recourse notes or debt 142 issued to the trust fund 110) to the value of the aggregate equity of the inter-fund class 131 (represented by the shares 141 of the inter-fund class 131 issued to the trust fund 110) is maintained at a ratio of one-to-one within prescribed tolerance levels, according to one embodiment, of plus or minus 5%. As a result, for example, if the value of the aggregate equity of the inter-fund declines to 45% of the aggregate value of the combined debt and equity of the class or increases to 55% of such value, an equivalent portion of the existing debt will be sold or purchased to ensure that the debt to equity ratio of the inter-fund class 131 will always be maintained within the prescribed tolerance levels and returned to a ratio of one-to-one.
The mutual fund manager or the board of directors may rebalance this inter-fund capital structure based on daily movements in the net asset value ("NAV") of the inter-fund class shares 141 and limited recourse notes 142. The daily rebalancing of this capital structure is advantageous and results in an improvement in the Canada Revenue Agency's ("CRA") capital gains refund mechanism which shelters actual capital gains in the corporation 100. The inter-fund class limited recourse debt 142 is also advantageous. In typical Canadian 81-102 mutual funds, issuing debt is precluded except in limited circumstances to fund redemptions.
[0032] The fund-on-fund arrangement and the investment in the inter-fund class 131 facilitates the deduction of interest expenses on the debt in the corporate fund 120 against a variety of types of investment income (see Table A) that could not otherwise be distributed from a Canadian mutual fund corporation. The interest expense in the corporate fund 120 is received as interest income in the trust 110. If taxable investors were to purchase trust units this income would have to be distributed and taxed at punitive personal rates. However, the trust's only investors are non-taxable, in general, and accordingly these investors are indifferent to high tax-rate income distributions. The shares of the inter-fund class 131 also facilitate the movement of unwanted excess taxable dividend and capital gain distributions up to indifferent non-taxable registered investors.
[0033] As shown in Table A, taxable distribution preference and expense tax allocation rules are established for each of the classes 131, 132, 133, 134, 135. Typically, a mutual fund manager or the board of directors establishes rules relating to the allocation of Canadian taxable dividends, capital gains dividends, fund expenses and inter-fund class limited recourse debt interest expenses among the classes 131, 132, 133, 134, 135 of the corporate fund 120, including the inter-fund class 131.
These rules are structured to increase the likelihood that all of the tax classes will attain their respective objectives, in a manner believed to be equitable by the mutual fund manager. The taxable preferences and expense allocations by class and by type of taxable distribution or income source are as shown in Table A.
[0034] On a regular (e.g., daily) basis, the gross return or loss (i.e., income) of the portfolio 150, after expenses (e.g., inter-fund class limited recourse debt interest expenses, fund expenses, etc.), is allocated to the net asset value ("NAV") of the five tax classes 131, 132, 133, 134, 135. On an regular (e.g., daily, annually, etc.) basis, using the above preference and expense allocation table, the taxable distributions required to be made by the mutual fund corporation 100, if any, are allocated first to the corporate fund 120 and then to the various classes 131, 132, 133, 134, 135 within the fund in accordance with the distribution preferences listed in Table A.
[0035] The present invention has several advantages over prior mutual fund structures as follows:
= Allows for optimizing taxable investors' after-tax returns from mutual funds.
= Provides for managing the tax consequences of different types of investors in a mutual fund in order to optimize their respective after-tax rates of return.
= Provides for allocating taxable distributions from a single investment portfolio using preference classes or series to minimize the tax consequences of those distributions on specific types of individual taxable investors.
= Allows an investor to select an investment unit or share which optimizes the investment return tax attribute that is most beneficial to his or her personal or family circumstances.
[0036] While the above method is described in the context of the Canadian tax regime, it will be understood to those of skill in the art that the method is also applicable to other tax regimes having comparable features.
[0037] According to one embodiment, the mutual fund corporation 100 may be a corporation under corporate legislation. According to another embodiment, the mutual fund corporation 100 may be a corporate fund 120. According to another embodiment, the mutual fund corporation 100 may be a corporate mutual fund not subject to National Instrument 81-102. According to another embodiment, the mutual fund corporation 100 may be a mutual fund trust. According to another embodiment, the mutual fund corporation 100 may be a non-redeemable investment fund. According to another embodiment, the mutual fund corporation 100 may include one or more corporate funds 120.
[0038] The above described method (i.e., with respect to FIG. 1 and Table A) may be summarized with the aid of a flowchart. FIG. 2 is a flow chart illustrating operations 200 of a method for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets 150 to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, in accordance with an embodiment of the invention.
[0039] At step 201, the operations 200 start.
[0040] At step 202, a mutual fund corporation 100 for holding the portfolio of assets 150 is established.
[0041] At step 203, at least two classes 132, 133, 134, 135 of securities for the mutual fund corporation 100 are established, each of the classes 132, 133, 134, 135 of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0042] At step 204, the income is distributed among the classes 132, 133, 134, 135 of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0043] At step 205, the operations 200 end.
[0044] The taxable income types may include one or more of foreign dividend income, interest income, income trust income, taxable dividends, and capital gains (see Table A). The classes 132, 133, 134, 135 of securities may include an inter-fund class 131 of securities and the step of establishing may further include establishing a mutual fund trust 110 and exchanging debt 142 of the mutual fund corporation 100 and securities 141 of the inter-fund class 131 of securities for assets of the mutual fund trust 110. The mutual fund corporation 100 may be one of a corporation, a corporate fund 120, a mutual fund corporation not subject to National Instrument 81-102, a mutual fund trust, a non-redeemable investment fund, and a mutual fund corporation 100 having one or more corporate funds 120. The method may further include applying one or more of the foreign dividend income, the interest income, and the income trust income to interest on the debt 142 and to fund expenses.
The rights to receive preference of distribution in respect of the one or more taxable income types may be ranked (see Table A). And, the classes of securities may be series of securities.
[0045] According to one embodiment of the invention, aspects of the above described method may be implemented in a data processing system. The term "data processing system"
is used herein to refer to any machine for processing data, including the communication systems, computer systems, and network arrangements described herein. The present invention may be implemented in any computer programming language provided that the operating system of the data processing system provides the facilities that may support the requirements of the present invention. Any limitations presented would be a result of a particular type of operating system or computer programming language and would not be a limitation of the present invention.
[0046] FIG. 3 is a block diagram illustrating a data processing system 300 adapted to implement an embodiment of the invention. The data processing system 300 includes a central processing unit ("CPU") 320 and memory 330. The data processing system 300 may also include an input device 310, a display 340, and an interface device 350. The CPU 320 may include dedicated coprocessors and memory devices. The memory 330 may include RAM, ROM, disk devices, and databases. The interface device 350 may include a network connection including an Internet network connection.
The input device 310 may include a keyboard, a mouse, a trackball, or a similar device. And, the display 340 may include a computer screen, terminal device, or a hardcopy producing output device such as a printer or plotter. The data processing system 300 is adapted for communicating with other data processing systems (not shown) over a network (not shown) via the interface device 350. The data processing system 300 may include a database system 332 for storing and accessing investment and programming information. The database system 332 may include a database management system ("DBMS") and a database and is stored in the memory 330 of the data processing system 300. The data processing system 300 has stored therein data representing sequences of instructions which when executed cause the method described herein to be performed. Of course, the data processing system 300 may contain additional software and hardware a description of which is not necessary for understanding the invention.
[0047] Thus, the data processing system 300 includes computer executable programmed instructions for directing the system 300 to implement the embodiments of the present invention. The programmed instructions may be embodied in one or more software modules 331 resident in the memory 330 of the data processing system 300. Alternatively, the programmed instructions may be embodied on a computer readable medium (such as a CD disk or floppy disk) which may be used for transporting the programmed instructions to the memory 330 of the data processing system 300.
Alternatively, the programmed instructions may be embedded in a computer readable signal or signal-bearing medium which may be uploaded to a network by a vendor or supplier of the programmed instructions, and this signal or signal-bearing medium may be downloaded through an interface (e.g., 350) to the data processing system 300 from the network by end users or potential buyers.
[0048] FIG. 4 is a flow chart illustrating operations 400 of software modules 331 within the memory 330 of a data processing system 300 for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets 150 to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, in accordance with an embodiment of the invention.
[0049] At step 401, the operations 400 start.
[0050] At step 402, a model of a mutual fund corporation 100 for holding the portfolio of assets 150 is received, the model having at least two classes 132, 133, 134, 135 of securities for the mutual fund corporation 100, each of the classes 132, 133, 134, 135 of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0051] At step 403, a signal indicative of the one or more of dividend income, capital gains income, and capital is received.
[0052] At step 404, a distribution of the one or more of dividend income, capital gains income, and capital among the classes 132, 133, 134, 135 of securities is calculated according to the respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0053] At step 405, a signal indicative of the distribution is sent.
[0054] At step 406, the operations 400 end.
[0055] The taxable income types may include one or more of foreign dividend income, interest income, income trust income, taxable dividends, and capital gains (see Table A). The classes 132, 133, 134, 135 of securities may include an inter-fund class 131 of securities and the model may further include a mutual fund trust I 10 and an exchange of debt 142 of the mutual fund corporation 100 and securities 141 of the inter-fund class 131 of securities for assets of the mutual fund trust 110.
The mutual fund corporation 100 may be one of a corporation, corporate fund 120, a corporate mutual fund not subject to National Instrument 81-102, a mutual fund trust, a non-redeemable investment fund, and a mutual fund corporation 100 having one or more corporate funds 120. The method may further include applying one or more of the foreign dividend income, the interest income, and the income trust income to interest on the debt 142 and to fund expenses. The rights to receive preference of distribution in respect of the one or more taxable income types may be ranked (see Table A). And, the classes of securities may be series of securities.
[0056] At least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital may be received from a second data processing system, the second data processing system being coupled to the data processing system 300 by a network. At least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital may be received from an input device 310, the input device 310 being manipulated by a user. At least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital may be received from memory 330 of the data processing system 300. The signal indicative of the distribution may be sent to a second data processing system, the second data processing system being coupled to the data processing system 300 by a network. The signal indicative of the distribution may be sent to a display for presentation to a user. And, the signal indicative of the distribution may be sent to memory 330 of the data processing system 300 for storage.
[0057] With respect to step 403, the signal may be generated by a second data processing system.
This second data processing system, typically maintained by an external service provider, includes a fund general ledger system. The signal is generated by extracting accounting data and the market value of the securities for each fund from the general ledger system, typically on December 15 th of each year.
[0058] With respect to step 404, the data processing system 300 calculates the distribution as follows. First, a module 331 in the system 300 converts accounting income to taxable income by adjusting for trade dates, taxation treatment of various items, etc. Second, the capital gains retained allowance for the corporation 100 is calculated. The system 300 includes a module 331 to calculate the allowable capital gains redemption amount which is based on tax rules and accounting and marketing value data. The capital gains redemption is defined in the Canadian Income Tax Act.
Proforma tax returns are then prepared for the corporation 100. A module 331 in the system 300 generates proforma tax returns for the corporation 100 as a first step in determining taxable income available for distribution.
[0059] Second, taxable income is calculated for distribution. The database system 332 contains accounting and taxable income on a class 131, 132, 133, 134, 135, fund 120, and consolidated corporation 100 basis. A module 331 in the system 300 performs an iterative tax optimization process which involves matching taxable income with class asset and class preference data for each fund 120 and for the total corporation 100 to arrive at optimal distribution amounts and types (i.e., dividend income, capital gains income, and return of capital). In particular, assets as a percentage of total corporation assets are calculated first on a fund basis and then on a class/fund basis (i.e., all classes (DTC 134, CG 132, IF 131, CGR 135, ROC 133); taxable distribution classes (DTC, CG, IF) - all classes except CGR and ROC classes). The taxable income of the corporation 100 is then allocated to the taxable distribution classes (DTC, CG, IF) on a fund/class prorata basis. If the taxable income allocated to the DTC class for any fund exceeds a stated fund yield percentage, it will be necessary to allocated the surplus taxable income to the ROC and/or CG
classes. The per share distribution for each fund/class is then determined.
[0060] Third, the ROC class distribution for each fund equal to the specified yield is determined.
[0061] With respect to step 405, dividend distributions in the fund general ledger are accrued.
Noting that the records of the transfer agent and fund registrar are maintained in the second external data processing system (or systems), fund/class distributions (amount, record, payment dates, income type) are transferred electronically to the external transfer agent's system for processing. The transfer agent processes dividend and/or return of capital payments against specific funds/classes and either generates a cheque for the amount distributed or reinvests in additional shares as directed by the investor. The transfer agent then sends an electronic record to the fund accounting agent of dividend and return of capital activity for each fund/class, which is then posted to the funds' general ledger.
[0062] Although not shown in FIG. 4, financial data from the funds' December
Proceeds of sales of the various tax class shares to taxable investors are also invested in the corporate fund's portfolio 150. The inter-fund class limited recourse debt structure has a related interest rate.
This debt 142 is an advantageous feature of the present invention and is designed to apply a high rate deduction interest expense against three types of high tax-rate investment income potentially received from the portfolio 150, namely, foreign dividend income, interest income, and income trust income (see Table A).
[0031 ] The debt 142 consists of limited recourse notes which are redeemable on demand by the trust fund 110 and pay, according to one embodiment, interest at a floating rate equal to the prime rate of interest plus 1%. The debt 142 is secured by, and the recourse will be limited to, the assets of the applicable inter-fund class 131. The value of the aggregate debt of the inter-fund class 131 (represented by the limited recourse notes or debt 142 issued to the trust fund 110) to the value of the aggregate equity of the inter-fund class 131 (represented by the shares 141 of the inter-fund class 131 issued to the trust fund 110) is maintained at a ratio of one-to-one within prescribed tolerance levels, according to one embodiment, of plus or minus 5%. As a result, for example, if the value of the aggregate equity of the inter-fund declines to 45% of the aggregate value of the combined debt and equity of the class or increases to 55% of such value, an equivalent portion of the existing debt will be sold or purchased to ensure that the debt to equity ratio of the inter-fund class 131 will always be maintained within the prescribed tolerance levels and returned to a ratio of one-to-one.
The mutual fund manager or the board of directors may rebalance this inter-fund capital structure based on daily movements in the net asset value ("NAV") of the inter-fund class shares 141 and limited recourse notes 142. The daily rebalancing of this capital structure is advantageous and results in an improvement in the Canada Revenue Agency's ("CRA") capital gains refund mechanism which shelters actual capital gains in the corporation 100. The inter-fund class limited recourse debt 142 is also advantageous. In typical Canadian 81-102 mutual funds, issuing debt is precluded except in limited circumstances to fund redemptions.
[0032] The fund-on-fund arrangement and the investment in the inter-fund class 131 facilitates the deduction of interest expenses on the debt in the corporate fund 120 against a variety of types of investment income (see Table A) that could not otherwise be distributed from a Canadian mutual fund corporation. The interest expense in the corporate fund 120 is received as interest income in the trust 110. If taxable investors were to purchase trust units this income would have to be distributed and taxed at punitive personal rates. However, the trust's only investors are non-taxable, in general, and accordingly these investors are indifferent to high tax-rate income distributions. The shares of the inter-fund class 131 also facilitate the movement of unwanted excess taxable dividend and capital gain distributions up to indifferent non-taxable registered investors.
[0033] As shown in Table A, taxable distribution preference and expense tax allocation rules are established for each of the classes 131, 132, 133, 134, 135. Typically, a mutual fund manager or the board of directors establishes rules relating to the allocation of Canadian taxable dividends, capital gains dividends, fund expenses and inter-fund class limited recourse debt interest expenses among the classes 131, 132, 133, 134, 135 of the corporate fund 120, including the inter-fund class 131.
These rules are structured to increase the likelihood that all of the tax classes will attain their respective objectives, in a manner believed to be equitable by the mutual fund manager. The taxable preferences and expense allocations by class and by type of taxable distribution or income source are as shown in Table A.
[0034] On a regular (e.g., daily) basis, the gross return or loss (i.e., income) of the portfolio 150, after expenses (e.g., inter-fund class limited recourse debt interest expenses, fund expenses, etc.), is allocated to the net asset value ("NAV") of the five tax classes 131, 132, 133, 134, 135. On an regular (e.g., daily, annually, etc.) basis, using the above preference and expense allocation table, the taxable distributions required to be made by the mutual fund corporation 100, if any, are allocated first to the corporate fund 120 and then to the various classes 131, 132, 133, 134, 135 within the fund in accordance with the distribution preferences listed in Table A.
[0035] The present invention has several advantages over prior mutual fund structures as follows:
= Allows for optimizing taxable investors' after-tax returns from mutual funds.
= Provides for managing the tax consequences of different types of investors in a mutual fund in order to optimize their respective after-tax rates of return.
= Provides for allocating taxable distributions from a single investment portfolio using preference classes or series to minimize the tax consequences of those distributions on specific types of individual taxable investors.
= Allows an investor to select an investment unit or share which optimizes the investment return tax attribute that is most beneficial to his or her personal or family circumstances.
[0036] While the above method is described in the context of the Canadian tax regime, it will be understood to those of skill in the art that the method is also applicable to other tax regimes having comparable features.
[0037] According to one embodiment, the mutual fund corporation 100 may be a corporation under corporate legislation. According to another embodiment, the mutual fund corporation 100 may be a corporate fund 120. According to another embodiment, the mutual fund corporation 100 may be a corporate mutual fund not subject to National Instrument 81-102. According to another embodiment, the mutual fund corporation 100 may be a mutual fund trust. According to another embodiment, the mutual fund corporation 100 may be a non-redeemable investment fund. According to another embodiment, the mutual fund corporation 100 may include one or more corporate funds 120.
[0038] The above described method (i.e., with respect to FIG. 1 and Table A) may be summarized with the aid of a flowchart. FIG. 2 is a flow chart illustrating operations 200 of a method for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets 150 to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, in accordance with an embodiment of the invention.
[0039] At step 201, the operations 200 start.
[0040] At step 202, a mutual fund corporation 100 for holding the portfolio of assets 150 is established.
[0041] At step 203, at least two classes 132, 133, 134, 135 of securities for the mutual fund corporation 100 are established, each of the classes 132, 133, 134, 135 of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0042] At step 204, the income is distributed among the classes 132, 133, 134, 135 of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0043] At step 205, the operations 200 end.
[0044] The taxable income types may include one or more of foreign dividend income, interest income, income trust income, taxable dividends, and capital gains (see Table A). The classes 132, 133, 134, 135 of securities may include an inter-fund class 131 of securities and the step of establishing may further include establishing a mutual fund trust 110 and exchanging debt 142 of the mutual fund corporation 100 and securities 141 of the inter-fund class 131 of securities for assets of the mutual fund trust 110. The mutual fund corporation 100 may be one of a corporation, a corporate fund 120, a mutual fund corporation not subject to National Instrument 81-102, a mutual fund trust, a non-redeemable investment fund, and a mutual fund corporation 100 having one or more corporate funds 120. The method may further include applying one or more of the foreign dividend income, the interest income, and the income trust income to interest on the debt 142 and to fund expenses.
The rights to receive preference of distribution in respect of the one or more taxable income types may be ranked (see Table A). And, the classes of securities may be series of securities.
[0045] According to one embodiment of the invention, aspects of the above described method may be implemented in a data processing system. The term "data processing system"
is used herein to refer to any machine for processing data, including the communication systems, computer systems, and network arrangements described herein. The present invention may be implemented in any computer programming language provided that the operating system of the data processing system provides the facilities that may support the requirements of the present invention. Any limitations presented would be a result of a particular type of operating system or computer programming language and would not be a limitation of the present invention.
[0046] FIG. 3 is a block diagram illustrating a data processing system 300 adapted to implement an embodiment of the invention. The data processing system 300 includes a central processing unit ("CPU") 320 and memory 330. The data processing system 300 may also include an input device 310, a display 340, and an interface device 350. The CPU 320 may include dedicated coprocessors and memory devices. The memory 330 may include RAM, ROM, disk devices, and databases. The interface device 350 may include a network connection including an Internet network connection.
The input device 310 may include a keyboard, a mouse, a trackball, or a similar device. And, the display 340 may include a computer screen, terminal device, or a hardcopy producing output device such as a printer or plotter. The data processing system 300 is adapted for communicating with other data processing systems (not shown) over a network (not shown) via the interface device 350. The data processing system 300 may include a database system 332 for storing and accessing investment and programming information. The database system 332 may include a database management system ("DBMS") and a database and is stored in the memory 330 of the data processing system 300. The data processing system 300 has stored therein data representing sequences of instructions which when executed cause the method described herein to be performed. Of course, the data processing system 300 may contain additional software and hardware a description of which is not necessary for understanding the invention.
[0047] Thus, the data processing system 300 includes computer executable programmed instructions for directing the system 300 to implement the embodiments of the present invention. The programmed instructions may be embodied in one or more software modules 331 resident in the memory 330 of the data processing system 300. Alternatively, the programmed instructions may be embodied on a computer readable medium (such as a CD disk or floppy disk) which may be used for transporting the programmed instructions to the memory 330 of the data processing system 300.
Alternatively, the programmed instructions may be embedded in a computer readable signal or signal-bearing medium which may be uploaded to a network by a vendor or supplier of the programmed instructions, and this signal or signal-bearing medium may be downloaded through an interface (e.g., 350) to the data processing system 300 from the network by end users or potential buyers.
[0048] FIG. 4 is a flow chart illustrating operations 400 of software modules 331 within the memory 330 of a data processing system 300 for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets 150 to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, in accordance with an embodiment of the invention.
[0049] At step 401, the operations 400 start.
[0050] At step 402, a model of a mutual fund corporation 100 for holding the portfolio of assets 150 is received, the model having at least two classes 132, 133, 134, 135 of securities for the mutual fund corporation 100, each of the classes 132, 133, 134, 135 of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0051] At step 403, a signal indicative of the one or more of dividend income, capital gains income, and capital is received.
[0052] At step 404, a distribution of the one or more of dividend income, capital gains income, and capital among the classes 132, 133, 134, 135 of securities is calculated according to the respective rights to receive preference of distribution in respect of the one or more taxable income types.
[0053] At step 405, a signal indicative of the distribution is sent.
[0054] At step 406, the operations 400 end.
[0055] The taxable income types may include one or more of foreign dividend income, interest income, income trust income, taxable dividends, and capital gains (see Table A). The classes 132, 133, 134, 135 of securities may include an inter-fund class 131 of securities and the model may further include a mutual fund trust I 10 and an exchange of debt 142 of the mutual fund corporation 100 and securities 141 of the inter-fund class 131 of securities for assets of the mutual fund trust 110.
The mutual fund corporation 100 may be one of a corporation, corporate fund 120, a corporate mutual fund not subject to National Instrument 81-102, a mutual fund trust, a non-redeemable investment fund, and a mutual fund corporation 100 having one or more corporate funds 120. The method may further include applying one or more of the foreign dividend income, the interest income, and the income trust income to interest on the debt 142 and to fund expenses. The rights to receive preference of distribution in respect of the one or more taxable income types may be ranked (see Table A). And, the classes of securities may be series of securities.
[0056] At least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital may be received from a second data processing system, the second data processing system being coupled to the data processing system 300 by a network. At least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital may be received from an input device 310, the input device 310 being manipulated by a user. At least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital may be received from memory 330 of the data processing system 300. The signal indicative of the distribution may be sent to a second data processing system, the second data processing system being coupled to the data processing system 300 by a network. The signal indicative of the distribution may be sent to a display for presentation to a user. And, the signal indicative of the distribution may be sent to memory 330 of the data processing system 300 for storage.
[0057] With respect to step 403, the signal may be generated by a second data processing system.
This second data processing system, typically maintained by an external service provider, includes a fund general ledger system. The signal is generated by extracting accounting data and the market value of the securities for each fund from the general ledger system, typically on December 15 th of each year.
[0058] With respect to step 404, the data processing system 300 calculates the distribution as follows. First, a module 331 in the system 300 converts accounting income to taxable income by adjusting for trade dates, taxation treatment of various items, etc. Second, the capital gains retained allowance for the corporation 100 is calculated. The system 300 includes a module 331 to calculate the allowable capital gains redemption amount which is based on tax rules and accounting and marketing value data. The capital gains redemption is defined in the Canadian Income Tax Act.
Proforma tax returns are then prepared for the corporation 100. A module 331 in the system 300 generates proforma tax returns for the corporation 100 as a first step in determining taxable income available for distribution.
[0059] Second, taxable income is calculated for distribution. The database system 332 contains accounting and taxable income on a class 131, 132, 133, 134, 135, fund 120, and consolidated corporation 100 basis. A module 331 in the system 300 performs an iterative tax optimization process which involves matching taxable income with class asset and class preference data for each fund 120 and for the total corporation 100 to arrive at optimal distribution amounts and types (i.e., dividend income, capital gains income, and return of capital). In particular, assets as a percentage of total corporation assets are calculated first on a fund basis and then on a class/fund basis (i.e., all classes (DTC 134, CG 132, IF 131, CGR 135, ROC 133); taxable distribution classes (DTC, CG, IF) - all classes except CGR and ROC classes). The taxable income of the corporation 100 is then allocated to the taxable distribution classes (DTC, CG, IF) on a fund/class prorata basis. If the taxable income allocated to the DTC class for any fund exceeds a stated fund yield percentage, it will be necessary to allocated the surplus taxable income to the ROC and/or CG
classes. The per share distribution for each fund/class is then determined.
[0060] Third, the ROC class distribution for each fund equal to the specified yield is determined.
[0061] With respect to step 405, dividend distributions in the fund general ledger are accrued.
Noting that the records of the transfer agent and fund registrar are maintained in the second external data processing system (or systems), fund/class distributions (amount, record, payment dates, income type) are transferred electronically to the external transfer agent's system for processing. The transfer agent processes dividend and/or return of capital payments against specific funds/classes and either generates a cheque for the amount distributed or reinvests in additional shares as directed by the investor. The transfer agent then sends an electronic record to the fund accounting agent of dividend and return of capital activity for each fund/class, which is then posted to the funds' general ledger.
[0062] Although not shown in FIG. 4, financial data from the funds' December
31 St financials consisting of general ledger amounts and the market value of securities is electronically transferred to a module 331 in the system 300. Provincial and federal tax returns are then generated. In particular, on January 1S', the general ledger is reconciled at fund/class and consolidated levels and year end financials are generated. The transfer agent reconciles December 31 S' shareholder accounting records at a fund and class level and generates year end client statements as appropriate.
[0063] While this invention is primarily discussed as a method, a person of ordinary skill in the art will understand that the apparatus discussed above with reference to a data processing system 300, may be programmed to enable the practice of the method of the invention.
Moreover, an article of manufacture for use with a data processing system 300, such as a pre-recorded storage device, signal, signal-bearing medium or other similar computer readable medium including program instructions recorded therein, may direct the data processing system 300 to facilitate the practice of the method of the invention. It is understood that such apparatus, articles of manufacture, signals, and signal-bearing media also come within the scope of the invention.
[0064] In particular, the sequences of instructions which when executed cause the method described herein to be performed by the data processing system 300 of FIG. 3 can be contained in a data carrier product, signal, or signal-bearing medium according to one embodiment of the invention. This data carrier product, signal, or signal-bearing medium can be loaded into and run by the data processing system 300 of FIG. 3. In addition, the sequences of instructions which when executed cause the method described herein to be performed by the data processing system 300 of FIG. 3 can be contained in a computer software product according to one embodiment of the invention. This computer software product can be loaded into and run by the data processing system 300 of FIG. 3.
Moreover, the sequences of instructions which when executed cause the method described herein to be performed by the data processing system 300 of FIG. 3 can be contained in an integrated circuit product including a coprocessor or memory according to one embodiment of the invention. This integrated circuit product can be installed in the data processing system 300 of FIG. 3.
[0065] The embodiments of the invention described above are intended to be exemplary only. Those skilled in this art will understand that various modifications of detail may be made to these embodiments, all of which come within the scope of the invention.
[0063] While this invention is primarily discussed as a method, a person of ordinary skill in the art will understand that the apparatus discussed above with reference to a data processing system 300, may be programmed to enable the practice of the method of the invention.
Moreover, an article of manufacture for use with a data processing system 300, such as a pre-recorded storage device, signal, signal-bearing medium or other similar computer readable medium including program instructions recorded therein, may direct the data processing system 300 to facilitate the practice of the method of the invention. It is understood that such apparatus, articles of manufacture, signals, and signal-bearing media also come within the scope of the invention.
[0064] In particular, the sequences of instructions which when executed cause the method described herein to be performed by the data processing system 300 of FIG. 3 can be contained in a data carrier product, signal, or signal-bearing medium according to one embodiment of the invention. This data carrier product, signal, or signal-bearing medium can be loaded into and run by the data processing system 300 of FIG. 3. In addition, the sequences of instructions which when executed cause the method described herein to be performed by the data processing system 300 of FIG. 3 can be contained in a computer software product according to one embodiment of the invention. This computer software product can be loaded into and run by the data processing system 300 of FIG. 3.
Moreover, the sequences of instructions which when executed cause the method described herein to be performed by the data processing system 300 of FIG. 3 can be contained in an integrated circuit product including a coprocessor or memory according to one embodiment of the invention. This integrated circuit product can be installed in the data processing system 300 of FIG. 3.
[0065] The embodiments of the invention described above are intended to be exemplary only. Those skilled in this art will understand that various modifications of detail may be made to these embodiments, all of which come within the scope of the invention.
Claims (23)
1. A method for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, the method comprising:
establishing a mutual fund corporation for holding the portfolio of assets;
establishing at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types; and, distributing the income among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types.
establishing a mutual fund corporation for holding the portfolio of assets;
establishing at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types; and, distributing the income among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types.
2. The method of claim 1 wherein the taxable income types include one or more of foreign dividend income, interest income, income trust income, taxable dividends, and capital gains.
3. The method of claim 2 wherein the at least two classes of securities includes an inter-fund class of securities and wherein the establishing further comprises establishing a mutual fund trust and exchanging debt of the mutual fund corporation and securities of the inter-fund class of securities for assets of the mutual fund trust.
4. The method of claim 1 wherein the mutual fund corporation is one of a corporation, a corporate fund, a corporate mutual fund not subject to National Instrument 81-102, a mutual fund trust, a non-redeemable investment trust, and a mutual fund corporation having one or more corporate funds.
5. The method of claim 3 and further comprising applying one or more of the foreign dividend income, the interest income, and the income trust income to interest on the debt and to fund expenses.
6. The method of claim 1 wherein the rights to receive preference of distribution in respect of the one or more taxable income types are ranked.
7. The method of claim 1 wherein the classes of securities are at least one of series of securities and evidence of an interest.
8. A method in a data processing system for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, the method comprising:
receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types;
receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types;
and, sending a signal indicative of the distribution.
receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types;
receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types;
and, sending a signal indicative of the distribution.
9. The method of claim 8 wherein the taxable income types include one or more of foreign dividend income, interest income, income trust income, taxable dividends, and capital gains.
10. The method of claim 9 wherein the at least two classes of securities includes an inter-fund class of securities and wherein the model further comprises a mutual fund trust and an exchange of debt of the mutual fund corporation and securities of the inter-fund class of securities for assets of the mutual fund trust.
11. The method of claim 8 wherein the mutual fund corporation is one of a corporation, a corporate fund, a corporate mutual fund not subject to National Instrument 81-102, a mutual fund trust, a non-redeemable investment fund, and a mutual fund corporation having one or more corporate funds.
12. The method of claim 10 and further comprising applying one or more of the foreign dividend income, the interest income, and the income trust income to interest on the debt and to fund expenses.
13. The method of claim 8 wherein the rights to receive preference of distribution in respect of the one or more taxable income types are ranked.
14. The method of claim 8 wherein the classes of securities are at least one of series of securities and evidence of an interest.
15. The method of claim 8 wherein at least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital is received from a second data processing system, the second data processing system being coupled to the data processing system by a network.
16. The method of claim 8 wherein at least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital is received from an input device, the input device being manipulated by a user.
17. The method of claim 8 wherein at least one of the model and the signal indicative of the one or more of dividend income, capital gains income, and capital is received from memory of the data processing system.
18. The method of claim 8 wherein the signal indicative of the distribution is sent to a second data processing system, the second data processing system being coupled to the data processing system by a network.
19. The method of claim 8 wherein the signal indicative of the distribution is sent to a display for presentation to a user.
20. The method of claim 8 wherein the signal indicative of the distribution is sent to memory of the data processing system for storage.
21. A system for distributing one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, the system comprising:
a processor coupled to memory and adapted to execute:
a module for receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types;
a module for receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
a module for calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types; and, a module for sending a signal indicative of the distribution.
a processor coupled to memory and adapted to execute:
a module for receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types;
a module for receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
a module for calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types; and, a module for sending a signal indicative of the distribution.
22. A computer program product having computer executable code for directing a data processing system to distribute one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, the code comprising:
code for receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types;
code for receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
code for calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types;
and, code for sending a signal indicative of the distribution.
code for receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types;
code for receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
code for calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types;
and, code for sending a signal indicative of the distribution.
23. A computer readable signal for directing a data processing system to distribute one or more of dividend income, capital gains income, and capital from a portfolio of assets to investors, the one or more of dividend income, capital gains income, and capital including one or more taxable income types, the signal comprising:
a signal for receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types;
a signal for receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
a signal for calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types;
and, a signal for sending a signal indicative of the distribution.
a signal for receiving a model of a mutual fund corporation for holding the portfolio of assets, the model having at least two classes of securities for the mutual fund corporation, each of the classes of securities having respective rights to receive preference of distribution in respect of the one or more taxable income types;
a signal for receiving a signal indicative of the one or more of dividend income, capital gains income, and capital;
a signal for calculating a distribution of the one or more of dividend income, capital gains income, and capital among the classes of securities according to the respective rights to receive preference of distribution in respect of the one or more taxable income types;
and, a signal for sending a signal indicative of the distribution.
Priority Applications (1)
| Application Number | Priority Date | Filing Date | Title |
|---|---|---|---|
| CA002531308A CA2531308A1 (en) | 2005-12-22 | 2005-12-22 | Mutual fund corporate structure with nested corporate funds having multiple categories of securities defining preferences of distribution based on taxable income types |
Applications Claiming Priority (1)
| Application Number | Priority Date | Filing Date | Title |
|---|---|---|---|
| CA002531308A CA2531308A1 (en) | 2005-12-22 | 2005-12-22 | Mutual fund corporate structure with nested corporate funds having multiple categories of securities defining preferences of distribution based on taxable income types |
Publications (1)
| Publication Number | Publication Date |
|---|---|
| CA2531308A1 true CA2531308A1 (en) | 2007-06-22 |
Family
ID=38175416
Family Applications (1)
| Application Number | Title | Priority Date | Filing Date |
|---|---|---|---|
| CA002531308A Abandoned CA2531308A1 (en) | 2005-12-22 | 2005-12-22 | Mutual fund corporate structure with nested corporate funds having multiple categories of securities defining preferences of distribution based on taxable income types |
Country Status (1)
| Country | Link |
|---|---|
| CA (1) | CA2531308A1 (en) |
-
2005
- 2005-12-22 CA CA002531308A patent/CA2531308A1/en not_active Abandoned
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| EEER | Examination request | ||
| FZDE | Discontinued |
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Effective date: 20220622 |